North Carolina House Passes Beach Plan Insurance Reform Measure

The North Carolina House voted 89 to 27 yesterday to approve a measure designed to re-establish the state’s coastal insurance provider, the Beach Plan, as a market of last resort and cap the liability of private insurers for any shortfall in Beach Plan funds at $1 billion.

The bill authorizes insurers to surcharge policies up to 10 percent — a so-called “catastrophic assessment recoupment”– should the Beach Plan incur a deficit that exceeds their $1 billion responsibility.

The assessments could begin if the Beach Plan exhausts its surplus, the $1 billion private insurer non-recoupable amount and about $2.4 billion in reinsurance.

As part of an attempt to control the state-backed insurer’s exposure, the measure (HB 1305) requires the Beach Plan to limit the coverage it offers on residential properties to $750,000 and on commercial properties to $3 million.

It also requires that Beach Plan rates be higher than private market rates.
Insurers contend that Beach Plan rates have not kept up with the exposure.

Insurers applauded the House action although they would like to see the Senate strengthen the language to make it absolutely certain that the private industry’s liability stops at $1 billion.

Raymond G. Farmer, American Insurance Association Southeast assistant vice president, said insurers want the bill to clarify that the Beach Plan is responsible for financing the payment of losses that exceed the total from surplus, the $1 billion in non-recoupable assessments, and reinsurance.

Once the stronger language and a few other issues are taken care of, the bill should be able to achieve its objectives of restoring the Beach Plan to its role as an insurer of last resort and opening the way for more private competition, according to Farmer.

Several insurers have pulled back from writing in the state because their liability for Beach Plan losses is currently uncapped.

“The comprehensive reform plan will allow the Beach Plan to get its financial house in order by requiring adequate rates, reducing policy limits, and requiring the purchase of reinsurance — all before assessments can be levied on insurers,” Farmer said. “And for the first time limits will be put on assessments and policyholder surcharges will be allowed, thereby preserving insurer capacity to write business.”

Liz Reynolds, Southeast state affairs manager for the National Association of Mutual Insurance Companies (NAMIC), expressed similar supprt.

“A stable, solvent Beach Plan with a balanced approach to sharing financial responsibility for paying claims following a hurricane is important to everyone. While this is not a perfect bill, we have a golden opportunity to make far-reaching, long-term changes to improve North Carolina’s coastal insurance market for property/casualty insurance companies and consumers throughout the state,” Reynolds said.